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_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Budget Office (CBO)

 

Border Adjustments for Economywide Policies That Impose a Price on Greenhouse Gas Emissions [19 December 2013]

http://www.cbo.gov/publication/44971

or

http://www.cbo.gov/sites/default/files/cbofiles/attachments/44971-GHGandTrade.pdf

[full-text, 26 pages]

 

[excerpt]

This CBO report examines the unintended effects on the competitiveness of U.S firms of an economywide policy, such as a carbon tax or a cap-and-trade program, that would reduce emissions by imposing a price on them. The report also assesses the use of border adjustments, such as import tariffs and export subsidies, and transition assistance to mitigate those unintended effects. Border adjustments could reduce the loss of competitiveness and make the costs of U.S. producers more similar to those of producers in countries that do not impose comparable policies, but such adjustments could be difficult to implement and to defend if challenged as being inconsistent with the General Agreement on Tariffs and Trade (GATT), one of the component agreements of the World Trade Organization (WTO). Transition assistance could also offset the loss of competitiveness and would probably be easier to implement but might engender difficulties under WTO agreements as well.

 

Contents

Summary 1

Policies That Impose a Price on Greenhouse Gas Emissions Could Have Unintended

Effects on the Competitiveness of Some Industries 1

Border Adjustments Could Offset the Loss of Competitiveness 2

Border Adjustments Would Be Difficult to Implement and to Defend If Challenged 2

Transition Assistance Also Could Offset the Loss of Competitiveness 3

Effects on Firms’ Costs of Policies That Impose a Price on Emissions 3

Unintended Effects of Economywide Policies That Impose a Price on Emissions 4

Consequences of the Changes in Competitiveness for Foreign Emissions 5

BOX: THE EFFECTS OF ALTERNATIVE EMISSION-REDUCTION POLICIES ON FIRMS’ COSTS 6

Consequences of the Changes in Competitiveness for Employment 9

Preserving Competitiveness With Border Adjustments 12

Practical Difficulties in Implementing Border Adjustments 13

Determining the Greenhouse Gas Emissions Embodied in Imports 13

Modifying Border Adjustments to Reflect Other Countries’ Emissions Policies 15

Potential Legal Challenges to Border Adjustments Under the GATT 15

Conflicts With General Provisions of the GATT 16

Possible Defenses 17

Preserving Competitiveness With Transition Assistance 20

Transition Costs and Transition Assistance 20

Implications for Competitiveness 20

Practical Difficulties 20

Constraints of the WTO Agreements 21

About This Document 22

 

Figures

1. Carbon Dioxide Emission Intensities, International Trade, and Emissions, by Industry, 2010 8

2. Carbon Dioxide Emission Intensities, International Trade, and Employment, by Industry, 2010 11

 

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